Ghana

Spread net wider
Incidentally, it is the non-bank but quasi- financial institutions that could now be even more problematic. Menzgold, a gold trading firm, is owing its customers huge sums of money that it likely would not be able to pay back. The firm’s chief executive Nana Appiah Mensah is now to face prosecution for myriad financial offences. But how would Menzgold customers get their money back?

Anxious customers would like the Bank of Ghana to intervene like it did for banks. It declined, adding how it warned citizens severally about the risks involved in patronising the firm which is now widely believed to have been operating a ponzi-type scheme. The relevance is whether the anger of Menzgold’s customers could create another crisis of confidence that could potentially rub off on the banking sector. In any case, the Bank of Ghana is increasingly getting the blame for not doing more.

Just like the banks that were found to be problematic had the patronage and endorsement of top politicians, Menzgold did as well. With almost 2 million Ghanaians invested in Menzgold to the tune of $400 million, it is highly unlikely the central bank would be able to escape responsibility both for the crisis and indeed for fixing it.

The Menzgold example further highlights poor regulatory vigilance on the part of the central bank. Clearly, even as Menzgold was not directly under its jurisdiction, the Bank of Ghana could not have been ignorant of the potential disruption the firm’s activities could cause to the financial system should things go south. In other words, just as the banking crisis was as a result of lax supervision, the Menzgold crisis is likewise. And until the regulator is better positioned and sufficiently willed to monitor and guard the financial system, another crisis may not be too far away.

GAT could be problematic
Already, there is talk about the propriety of GAT. Could more local banks have been rescued? Some wonder why GN Bank was not similarly rescued, for instance, leading to accusations of foul play. In remarks to the media on the issue, BoG governor Ernest Addison says the central bank did not choose the banks to be rescued: “We have not played a direct role but we supported the initiative”.

Members of parliament from the National Democratic Congress (NDC) party take a different view, saying in a statement released in January that “there has always been the suspicion that the NPP [New Patriotic Party] government led by Nana Akufo-Addo is hard on businesses owned by people perceived to be sympathisers of the former NDC administration.”

It is also wondered why in the first place hard-earned pension funds would be used to rescue banks that could not secure funds otherwise. Labour unions have raised concerns. In response, the finance ministry issued a statement in January to clarify the purpose of GAT. “The GAT arrangement is to support solvent and strong indigenous banks to meet the new minimum capital requirement and is not a bailout programme…”.

There is also the issue of the pensions law which stipulates that fund managers should not invest more than 5 percent of pension funds in collective investment schemes, which most industry stakeholders believe GAT is. They would be breaching this regulatory limit if they collectively invest up to 2 billion cedis in the SPV.

This should not be a problem, however, as the National Pensions Regulatory Authority (NPRA) is expected to grant special approvals to interested pension fund managers, some of which have already started entering into agreements with GAT. There could still be legal troubles ahead for GAT and the pension funds that subscribe to its instruments regardless.

Prosecute erring officials
It is abundantly clear the banking crisis occurred with the connivance of banking supervision staff at the Bank of Ghana. And unless those found wanting are punished, there is likely to be a recurrence. Osei Gyasi, head of banking supervision at the BoG told Joy News, a reputable television station, in early January that “the work of the ethics department [investigating the matter]…is almost completed and very soon the final report will be issued to management”.

And the Economic and Organised Crime Office (EOCO) has reportedly questioned persons of interest already. These are all encouraging steps. Still, scepticism remains about whether the authorities would follow through and prosecute the big and small fish involved. The culprits must be punished for full confidence to be restored.

An edited version was published in the first quarter 2019 issue of African Banker magazine

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In early January, the Bank of Ghana (BoG) announced there are now twenty-three banks – from thirty previously – licensed to operate as universal banks in Ghana. This followed their successful recapitalisation to at least 400 million cedis on or before 31 December 2018. The central bank gave the ‘minimum capital directive’ more than a year earlier. Out of the twenty-three, sixteen met the minimum capital requirement on their own. Three were mergers: First National Bank and GHL Bank, Energy Bank and First Atlantic Bank, and Sahel-Sahara Bank and Omni Bank.

Five indigenous banks, which could not secure the minimum capital before the deadline but deemed solvent and well-governed, were rescued by private pension funds through the “Ghana Amalgamated Trust Limited (GAT)”, a 2 billion cedis special purpose vehicle they formed for the purpose. They are state-owned Agricultural Development Bank and National Investment Bank, Omni/Sahel Bank, Universal Merchant Bank, and Prudential Bank.

Bank of Baroda, an Indian bank, chose to exit the Ghanaian market all together for strategic reasons. Assuringly, its operations have been taken over by Stanbic Bank. GN Bank, one of the erstwhile universal banks which could not meet the minimum capital requirement by the deadline, successfully applied for a savings and loans company licence. It has until June to complete the transition.

Some confidence restored
Seven banks, which were considered insolvent, had their licenses revoked, however. Unibank, The Royal Bank, Beige Bank, Sovereign Bank, and Construction Bank lost theirs over the previous one and a half years. Premium Bank and Heritage Bank are the two which were shut down in the new year. Like the earlier five, some of their assets and liabilities have also been transferred to Consolidated Bank Ghana, the ‘bad bank’ the authorities set up for the purpose.

The infractions by the closed banks were virtually the same. There were perenially illiquid and insolvent. Huge loans were granted to related parties and investments were fictitiously booked. And in the case of the defunct Heritage Bank, the sources of its capital were considered to be suspicious by the central bank and its majority shareholder adjudged not to have met the “fit and proper person” test.

In the most recent comprehensive update on the banking sector published by the central bank in November 2018, the main financial soundness indicators “recorded broad improvement…” relative to the year before. As at October 2018, there were thirty banks with total assets of 106 billion cedis. Thirteen of these were indigenous banks and seventeen were foreign-owned. Deposits were put at about 67 billion cedis, a quarter of which were in foreign currency. Shareholders’ funds were put at about 14 billion cedis.

By and large, the central bank has done a decent job of bringing some sanity to the erstwhile beleaguered banking industry. But are these steps enough? What about the reported poor governance systems at many banks? Not a tad few point to mismanagement and corruption for the genesis of the crisis. Have these been addressed? Would the central bank officials found culpable be dealt with to the full extent of the law?

What about the top politicians found to be responsible for embezzlement, insider deals, and stagnant loans at these banks? Would they be dealt with? And what informed the rescue of the five indigenous banks and not others?

More importantly, has confidence now been restored to the banking system? Probably. There certainly are now no panic withdrawals. And all those who go to their banks are able to do their transactions with little or no hassle.

An edited version was published in the first quarter 2019 issue of African Banker magazine

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Nana Akufo-Addo, the president of Ghana, is a great speaker. English audiences listen in awe to his speeches, marvelling at his mastery of their mother tongue. His fellow citizens did not stand a chance against his charm. He defeated an incumbent to the coveted position he now occupies with relative ease. His oratory was not all that won the votes of the majority of his compatriots. He sold a dream of an industrialised Ghana that would look beyond aid to development. At the time, during the campaigns and almost momentarily after he was sworn into office, analysts wondered about the realism of pursuing such adjudged follies as his “One district, One factory”, “One village, One dam” proposals. Still, as highfalutin as they sounded, the citizenry drank the Kool-Aid with relish. And to his credit, he was not just selling a dream. He meant to realise it. Bear in mind, this is not the first time such an experiment would be attempted in Ghana. And even for planned economies in the East like China, which underpinned the failed first trial, the authorities there have since learnt the wisdom of allowing market forces to determine certain things. Clearly aware of the scepticism, Yofi Grant, chief executive of the Ghana Investment Promotion Centre, told the Financial Times, a British newspaper, in September 2017, that “this time around it’s going to be private-sector driven, with government only playing a facilitatory role.”

Slow progress
Has this been the case more than a year afterwards? There has not been as much progress as envisaged by the authorities. Speaking to the Financial Times in October 2018, Joyce Awuku-Darko Osei, head of the transformation unit at the finance ministry, which prepared the current government’s “Ghana Beyond Aid” development framework, avers poor co-ordination is one reason why progress has been slow. “Only 600 of more than 1,000 factory proposals have been evaluated,” she tells the Financial Times. And she refutes the populist garb put on her prinicipal’s intentions. “The idea…is that private businesses can request government assistance (feeder roads, power supply, access to credit, etc) to make factories viable”, she adds. Still, how likely is it that there would be an industrial venture worthy of investors’ capital in every district? What do analysts think? Malte Liewerscheidt, Vice-president for West Africa at Teneo Intelligence in London tells New African that “at about half-time of Akufo-Addo’s first term, the ‘1 district 1 factory’ policy has still to get off the ground. As of October 2018, a mere 18 factories of varying size have been built in the 216 districts. The sluggish progress on one of the government’s flagship policies makes it rather unlikely that the stated target will be achieved by 2020. Teneo’s Liewerscheidt actually questions “whether [this] ‘shotgun approach’ to industrialization will yield sustainable results”. In the view of Verner Ayukegba, principal analyst for sub-saharan Africa at IHS Markit in London, the desirability of industrialisation to tackle such social challenges like high youth unemployment is not the subject of contestation but rather the somewhat impracticable approach. For instance, “factories need support infrastructure and other support services which is impossible to have in all districts”, says IHS Markit’s Ayukegba, reckoning “the concentration in Accra, Tema, [and] Takoradi is likely to continue.

There is also the issue of affordability. With public debt at more than 60 percent of gross domestic product (GDP), can Ghana afford more indebtedness in pursuit of these ambitions? Mr Ayukegba is unequivocal: “No! They’ve had to display immense creativity to get the Chinese to finance key projects with strong IMF [International Monetary Fund] opposition.” China has agreed to fund various infrastructure projects to the tune of $19 billion, in a deal signed during a state visit by President Akufo-Addo in early September, ahead of the Forum for China-Africa Cooperation (FOCAC) meeting in Beijing. More significant for the Chinese, though, is the estimated 960 million metric tonnes of bauxite reserves worth about half a trillion dollars when processed into aluminium that they hope to exploit in the 26,000 hectare Atiwa forest in southeastern Ghana. In a first phase, Sinohydro Corp Ltd paid the authorities $2 billion in November as part of a barter deal to fund road projects in exchange for refined bauxite. The authorities also plan to tap the eurobond markets for as much as $5 billion to $10 billion before end-2018; being the first tranche of its proposed century bonds of $50 billion, an amount almost equal to the current size of the economy. The government is probably banking on crude oil revenues to meet its debt obligations. But at an expected production level of 250,000 barrels per day by 2020, that is even as twice as much could be added soon after, it is unrealistic for the administration to bank its hopes on oil in this regard. That said, there are early indications of interests by foreign manufacturing capital allocators. In early September, the government signed a memorandum of understanding with Sinotruck International, a Chinese maker of heavy-duty vehicles, to build an assembly plant, which would initially produce about 1,500 trucks annually, with room for further expansion. The deal was struck not too long after Volkswagen, the German automaker, announced it was in talks with the government to build an assembly plant in the country as well.

Refine policy, set realistic targets
Without a doubt, there is a strong imperative to grow the manufacturing base. That is, even as crude oil production is expected to boost growth for a while, with the IMF projecting an average growth rate of about 6 percent in 2018-22; after an average acceleration of about 7 percent over the past decade. And even after the review of the base year of the country’s gross domestic product (GDP) data to 2013 from 2006 in September, which increased the size of the economy by about 25 percent in 2017, industry is still about a third of output; despite growing the highest at about 16 percent. Services, which is not as labour-intensive, takes the lion share at about 40 percent. As industry creates more jobs, the issue is not so much about the need for boosting the sector as it is about the approach. But what is the alternative, especially as the country’s increasing oil wealth may weigh on progress before too long if momentum towards an industrialised Ghana is not built right now. “There is no alternative than for government to keep that narrative at least from an aspirational standpoint”, IHS Markit’s Ayukegba opines. But the authorities could also “focus more on regionally-focused clusters to create economies of scale, which countries such as China have pursued with sometimes remarkable success,” avers Teneo’s Liewerscheidt. In any case, “automation in agriculture and industry [would erode] the benefits of such policies for employment [over time]”, adds Ayukegba. What can the government do then to make the policy better so that it achieves the objectives of industrialisation? “Power and other infrastructure investment to make the cost of production and doing business cheap”, is one way, according to Ayukegba, and a boost of the services sector is another. The authorities’ 5-pillar “Ghana Beyond Aid” development framework of wealth creation, inclusivity, sustainability, empowered Ghana, and resilient Ghana (WISER) already incorporates these considerations. So the issue is not so much about policy objectives as it is about a practicable, optimal and sustainable approach.

An edited version was published by New African magazine in January 2019